Legislature(2005 - 2006)
03/07/2006 02:31 PM Senate L&C
| Audio | Topic |
|---|---|
| Start | |
| SB306 | |
| SB272 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 272-MORTGAGE LENDING
2:39:04 PM
SENATOR BUNDE announced SB 272 to be up for consideration.
AMY SEITZ, staff to Senator Wagoner, sponsor, said she would
address version I.
SENATOR BETTYE DAVIS moved to adopt version I as the working
document. There were no objections.
MS. SEITZ explained that currently Alaska is the only state that
doesn't license and regulate residential mortgage lending.
Because of this, the Division of Banking and Securities has no
authority to investigate the complaints that it receives weekly
on protecting consumers. It receives about 20 complaints and 50
phone calls on questionable lending practices per week.
Increased access to Internet lending has contributed to the
growing number of complaints. The mortgage lending industry in
Alaska has been meeting for several years to develop language
for a bill that balances protection of Alaska's consumers while
insuring sufficient access to residential mortgage loans. SB 272
is a starting point to address this problem by granting the
division enough licensing and regulatory authority to begin
addressing the growing complaints from Alaska homebuyers. It has
the support of the division and several groups in the industry.
SENATOR BUNDE asked if the Department of Law had completed its
analysis.
MS. SEITZ [L1]replied that it is forthcoming.
2:42:51 PM
MARK DAVIS, Director, Division of Banking and Securities,
Department of Commerce, Community & Economic Development
(DCCED), said Alaska is the last state that does not have any
form of regulation. It operates a mortgage [L2]referral hotline
with the Department of Law[L3]. He gets inquiries from companies
outside of Alaska that might want to do business here that have
to be told the state doesn't have licensing; they then decide to
not come here. Also, because the state has no regulation, it
might be attracting companies that are less desirable. He
supported this legislation as does the Department of Law.
He said their comments on the committee substitute would be
technical and focused on the enforcement provisions in AS
06.604.20. The Department of Law wants to make sure that nothing
in that chapter excludes the powers it already has under the
Consumer Protection Act, which allows for restitution and
significant monetary damages. He supported the restitution
provision.
MR. DAVIS said this regulation should attract more competition,
not less, and that the cost to the consumer would be low; it
would better regulate contractor activity and protect consumers.
2:46:17 PM
SENATOR BUNDE asked about opposition.
MR. DAVIS replied that there is opposition. Some brokers thought
that a bill that does not include licensing of originators would
not protect consumers and would be inappropriate. That is why he
and the Department of Law felt they should make the mortgage
companies liable for the acts of the employees or the
independent contractors in this bill.
SENATOR BUNDE asked if this has a neutral fiscal note.
MR. DAVIS replied yes; it would require two positions - a bank
examiner and a licensing person. The fees should cover those
costs, however.
2:47:45 PM
AL SHAW, Shaw Mortgage Inc., from Alaska and Hawaii, testified
that predatory lending should be addressed and defined in the
legislation. Complaints should be in writing and not anonymous.
Audits should be limited in frequency and scope unless justified
in writing. The reason for the audit should be given in writing.
It should contain a provision for continuing education classes.
He felt that brokers should be liable for the actions of their
originators.
2:51:36 PM
JOHN CARMAN, President, Home State Mortgage, said he is also
Chairman of the Alaska Mortgage Bankers Legislative Committee.
He testified that more loans in Alaska are made by mortgage
brokers than by banks or savings and loans and they are not
regulated in any way. Many federal laws are in place that
mortgage brokers are required to adhere to, but there is no one
to enforce them. Alaska is the only state without regulations.
He has worked many years to get a bill, but it is impossible to
make everyone happy.
People who don't want regulation fall into two groups - those
that are honest and admit they don't want regulation for
whatever reason and others that say they are for regulation,
just not this regulation or any regulation that would stand a
chance of passing.
Consumers don't understand the difference between mortgage
brokers and mortgage lenders. The difference in the two entities
occurs as the loan is closed and sold. Most of the problems
occur on mortgage loans that are reported to his division
because of abuses in the application processing and locking part
of the loan process, which brokers do the same as mortgage
bankers. Those that oppose this legislation say that everyone is
being exempted from this legislation. Numerous brokers in House
testimony were saying that two-thirds of all originators would
be exempt. But that is just a red-herring issue. He explained:
This can only be a misunderstanding of the way these
exemptions work. The exemption for bank-affiliated
entities only applies to those entities that are
already subject to examination and audit by a federal
or state agency. If you aren't subject to examination,
you aren't exempt. This also applies to Internet
lenders. If they aren't subject to examination, they
aren't exempt.
He estimated that his company originates about one-third of all
loans in the Anchorage area. It would not be exempt. "If they
are subject to outside examination, then we don't want to burden
the state with examining them a second time when there is
already an examination going on."
He said the other exemptions are for non-profits like the
Anchorage Neighborhood House or quasi-governmental agencies like
Alaska Housing Finance or parents lending to their children. All
of those should be exempt.
Some say there are no consumer protections provided in the bill,
but the parts of the bill that have the most problems are the
ones in the 90 percent letters and the good faith estimate
sections, which give great protection to the consumers. It also
puts the Division of Banking in a place where it can respond to
problems. He didn't want to be regulated, but he wanted the
other guy to be regulated bad enough that he was willing to be
regulated under the same rules they are regulated under.
MR. CARMAN advised against attaching originator licensing, which
is needed, because that would delay the bill further. Even if it
passes, its effects would take one or two years. He noted that
someone complained about a section that would make loans more
difficult in rural Alaska, but the CS addresses those issues. He
felt that some were worried about the vindictive use of the
audit process by the Division of Banking and that is far
outweighed by the system he has now with no controls or audit.
2:58:51 PM
KEN GAIN, President, Cash Now Financial Corporation, a small
private lender, said he is also the Legislative Chairman and
Secretary Treasurer of the Independent Lenders of Alaska. He
worked very closely with the Division of Banking to have the
original bill introduced. At first he thought Cash Now didn't
need to be regulated because it lent its own money, but after
finding out about the complaints and that federal legislation is
pending that would require states to do this, he changed his
mind.
The first draft would have cost his firm about $25,000 a year to
comply, but the current bill would have a nominal cost -
comparable to what he pays as a licensed real estate appraiser
with an initial application fee of $500 and $250 per year.
Having to undergo an audit every 36 months or if there is a
complaint would add some costs, but those wouldn't be that out
of line. He estimated the audit would take a small firm about a
half-day. Also, he asked himself how else could the law be
enforced if the division didn't have the right of audit of
records, loan applications, etc. and figured that authority was
essential.
MR. GAIN reiterated that this bill regulates those who are not
now regulated and most of the exempted entities are already
regulated by the federal law that is referenced in it.
Most of the arguments against this regulation are from banks and
credit unions that are already regulated. The others would be
government agencies and non-profit charitable agencies, which
are giving charitable loans, which would not be abusive and
certain court appointed people. "So, the only one that might be
arguable is one that allows exemptions for lenders only, not
brokers, loaning their own money who do an average of one loan a
month...."
MR. GAIN summarized that he would like to see this bill passed.
3:05:28 PM
JOHN MARTIN, testifying offnet, noted he sent an email detailing
his points. He said some of the current language is vague. The
intent is to regulate mortgage entities, but the language refers
to a "person" in many places. So he suggested using "entity"
whenever possible. He estimated that about two-thirds of all
mortgage originators would be exempt and the bill is incomplete
because it is missing the most important element of all - the
licensing of individual mortgage originators. He felt the
control of the business needs to be with the people who deal
directly with the general public and that is the mortgage
originator.
MR. MARTIN said that most licensing deals with the individuals
who face the client. He used a real estate agent for an example
of a person who must take a competency test and has to undergo
ongoing education in order to do business. He also must work for
a licensed broker. The buck stops with the broker.
It's a good system. We should have the same thing for
mortgage lending. All mortgage lending entities in the
state should be licensed on a fair and even basis. All
mortgage originators should be licensed in the state
and have to work for a licensed entity, as well.
Utilization of that concept brings accountability
sharply into focus and better serves the residents of
our great state....
MR. MARTIN thought the bill should cover licensing of mortgage
entities and originators so that all players know the rules and
how they interact.
3:09:40 PM
DWIGHT DEELY, President, Evergreen Alaska Mortgage Corporation,
said they are an Internet mortgage company based in Alaska. It
is a member of the Alaska Association of Mortgage Brokers, the
National Association of Mortgage Brokers, and is a correspondent
for large wholesale lenders across the nation. It is also
affiliated with a federally chartered bank in Washington State.
He was essentially in favor of some form of regulation, but this
bill would not prevent "predatory lending," if that's the
ultimate goal. It's poorly written and "predatory lending" is
not well defined. There are also too many exemptions and it
seems to focus primarily on mortgage brokers and mortgage
lenders. Third, he felt they needed to consider regulating the
conduct of loan originators and officers rather than brokers.
MR. DEELY related that Bill Graham, Chairman, US Senate
Committee on Banking, Housing and Urban Affairs, concluded in a
report:
Predatory lending not defined by regulators seems [L4]to
encompass an ever-changing and broad assortment of
terms and conditions associated with a variety of
financial transactions. It is difficult to understand
how regulators can formulate proposals to combat
predatory lending when there is no clear understanding
as to what it is. In the absence of a definition, not
only might we miss the target, but we may hit the
wrong target....
The letters from the regulators recognize that the
practice can be abusive in some context, but it can
also in absence of fraud or deception be highly
beneficial to consumers. Moreover, this lack of any
definition hamstrings the effort to gather systematic
data on predatory lending....
MR. DEELY added that he thought that any regulation needs to be
applied across the board, not just to brokers and bankers.
Lastly, he thought it best to license individual originators, no
matter who [L5]they work for.
3:14:04 PM
CRIS SKINNER, President/Broker, Kelstar Financial of Alaska
Mortgage Company, said she is also on the legislative committee
of the Alaska Association of Mortgage Brokers. She criticized
the bill in its current form for being hollow. The questionable
activities take place at the mortgage loan originator's level.
She said, "By the time the client file reaches the lender, the
damage to the consumer has already taken place."
She asserted that the licensing and education of loan
originators must be incorporated in this bill for effective
consumer protection. Licensing of loan originators is being
pushed even on a national level, although it has been set aside.
Another reason this bill lacks merit is because it allows far
too many exemptions and is not in the best interests of the
consumer. Consumer complaints have been made to the Division of
Banking against all entities, even those who are exempt under
this bill. She formally asked this committee to require the
division to provide documentation of consumer complaints that
may prove the entities exempt under this bill are also the
subject of consumer complaints.
MS. SKINNER said that language in the bill has many gray areas
and needs clarification. It is evident that it regulates small
independent brokers and will impose financial burdens on them
that will passed on to the consumer. It is questionable with
regards to fair trade and small business protection.
She disagreed that any licensing is better than no licensing.
The licensing in this bill won't protect the consumer from
unscrupulous activities due to its many exemptions. It will take
options away from the consumer and allow larger entities to
monopolize the market.
3:16:56 PM
JOE BRAMMER, Manager, First Metropolitan Mortgage, said he also
serves on the Legislative Board of the Alaska Association of
Mortgage Brokers. He observed:
I know of no federal regulations that exist, let alone
that are being enforced that relate to the issuing or
preparation of prequalification letter or the
preparation of a good faith estimate for the ability
to refinance to refinance a consumer's mortgage loan.
I have never known the comptroller of the currency to
audit a prequalification letter.
He said that this bill doesn't create a level playing field and,
therefore, doesn't protect the consumer because most of those
involved are exempt. The supposition that something is better
than nothing is preposterous. He said, "The true problem is
unscrupulous mortgage loan originators. This is where
regulations must begin." He suggested that including brokers,
bankers and lenders would make this a better piece of
legislation and insisted that all mortgage loan originators
should be licensed.
3:20:32 PM
DUANE MATHES, Associate Broker, Dynamic Properties, said this
bill discriminates against small business people and small
mortgage brokers, in particular. It doesn't serve the public
well, either. He finds that mortgage lenders are more responsive
than mortgage bankers to their clients. He hoped the Legislature
could see that mortgage bankers had a big hand to play in this
bill and that wasn't very fair.
3:22:46 PM
VERNON RUSH, Alaska Capital, noted that he emailed and faxed his
comments. He related a personal story about how the arena on
Fireweed had been passed off to him as a commercial building of
grade "A" quality. He said:
My point to you is that any fraud or misrepresentation
starts at the customer level. By the time it gets to
the lenders and the secondary market, it's already
there.
He submitted that mortgage bankers are the ones who are
interested in this legislation and an exemption is a hollow
argument. He concluded saying there will always be customer
complaints.
3:25:47 PM
ULRIKE JOHNSON, Double Eagle Real Estate, testified that she was
totally delighted there was a bill and hoped would mandate
education for loan originators and processors straight across
the board. But this bill isn't even a good band-aid. It doesn't
protect the public. When times are good, everyone hires and the
training is forgotten.
She said that realtors, appraisers, home inspectors are licensed
and, "What's good for the goose is good for the gander. I think
it should be straight across for everybody." Everyone should be
licensed with continuing education and competency required.
3:27:14 PM
SHELLIE BUCK, Platinum Funding Group, Inc., said she is also a
member of the National Association of Mortgage Brokers and the
Alaska Association of Mortgage Brokers. She advocated for
education. She said consumer-level predatory lending happens
with originators. She related that a client could put down a lot
of money and turn around and not get their mortgage loan because
the mortgage originator had no idea he did not qualify under the
standard of the mortgage product he was offered. "This is where
predatory lending is at its highest and worst."
If licensing for mortgage originators is not added, consumers
won't be helped. Many areas of the bill are vague and she
offered to submit further comments through email about them.
3:28:50 PM
JAY PRICE, Aurora Mortgage Corporation, Wasilla, supported the
idea of the bill, but found the language in it was not clear.
For instance, Section 60.080. (2) had no definitions of what
experience is required or what is meant by "character." He
suggested including specifics. As written, this legislation
wouldn't protect the public.
3:30:39 PM
LINDA PATRICK, Evergreen Alaska Mortgage, Fairbanks, supported a
bill for licensing loan originators, but there are so many
points that need to be clarified that she didn't support it as
written.
3:31:22 PM
DOUG ISAACSON, President, Alaska Association of Mortgage
Brokers, didn't support the bill as written. He accused the
chairman of taking preferential testimony.
CHAIR BUNDE informed him that he took people as they had signed
up to speak and this bill would be heard again. "Everyone will
have an opportunity. I don't have a dog in this fight."
MR. ISAACSON said he wanted this bill modified before it passed.
3:32:12 PM
SENATOR BUNDE announced he would hold SB 272 in committee. He
said he wanted the bill's sponsor to work with interested
parties to accommodate a majority of the problems. He wanted
more specifics on the complaints from the Division of Banking.
He wanted "predatory lending" defined and the audit and
continuing education requirements fleshed out.
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